The Fuse
Equity futures are rallying this morning, the first time in a week as volatility is finally dropping. We have seen this before though, we’ll wait a bit longer to see if this rally sticks or is simply a reflex to a moderately oversold short term condition. After the worst week in a year it seems the bulls need to get their house in order before next week’s big Fed meeting.
Interest Rates are up modestly as equities take center stage. Yields have fallen sharply over the last several weeks, bond traders have been snapping up fixed income for some yield but it’s possible rates have come in a bit much. Hence, we may have entered a risk on mode for a few sessions to come. Fed funds are still seeing 4-5 rates cuts over the next six months, far more than the Fed is willing to commit to.
Stocks are on the move this morning helped by strength in markets overseas. The Stoxx Europe 600 gained nice ground overnight, up .6% as the dollar also climbed higher (yields are up). Gold is barely changed while crude oil is rising by 1%. The German 10 year bund is following treasuries and is rising by 5bps, Asian markets were down sharply with Japan off .5% as Hong Kong and Shanghai both fell more than 1%.
Earnings are sparse this week but we’ll hear from Oracle tonight, GameStop and Petco Tuesday and Adobe, RH and Kroger Thursday.
The big event of the week of course is Apple’s day, in which many anticipate a new AI-based iPhone will be introduced. This could lead to a supercycle for apple iPhones, their installed base is massive. will it be enough to drive investors/traders to this stock and other technology names after a very difficult week? It’ll be interesting to see if there is more selling on the news than buying.
Breadth was very bad on Friday and continued the poor breadth from midweek. This indicator has been flipflopping for a month now, oscillators are not quite oversold enough to call a big rally but it will be soon. New lows are expanding again versus new highs, that indicator is bearish.
Volume trends are bearish here, the last few days of down have been on heavier turnover. That means the market is now in distribution, and while rallies are possible (probable) they will turn into selling events. Professional selling can last for days and weeks before it ends. We should see volume levels pick up as the futures (ES) shift to December soon and a huge options expiration week approaches.
Support levels continue to be taken out with each down move in the market. Well, we could say test and failure, these levels now become solid resistance. The Nasdaq has support at 17,600 where the 50 week moving average lies, the SPX 500 finished right on the 20 week moving average which should be support, but if a lower high, lower low creates that will be troublesome. The candle last week was very bearish.
The Internals
What’s it mean?
Another huge down day for the markets, the internals continue to capture the weakness. Put/calls are on the climb again and are nearing sell signals, breadth has been a mess, the VOLD and ADD show this to be the case. After so many good breadth days in a row this fickle indicator has turned lower. Volatility is rising as week, the VIX at highs not seen in a month. Ticks were super red all day, the third time in a week. Bodes poorly for the markets today.
The Dynamite
Economic Data:
- Monday:Wholesale inventories, Consumer Credit
- Tuesday:NFIB Optimism Index
- Wednesday:CPI
- Thursday:Jobless claims, PPI, federal budget
- Friday:Import prices, consumer sentiment
Earnings this week:
- Monday:ORCL, CALA
- Tuesday:ASO, CMA,PLAY,GME, WOOF
- Wednesday:VRA, OXM
- Thursday:BIG, KR, SIG, ADBE, RH/span>
- Friday:N/A
Fed Watch:
No fedspeak this week, the committee is in their quiet period before next week’s crucial meeting. The data this past week still shows the economy is chugging along at a moderate pace, though some metrics in the labor report see chinks in the armor. A few fed speakers during the week stated the committee is ready to commence with a rate cutting policy which in our view will last quite awhile as the FOMC looks to reduce the tight conditions that have existed for a couple of years.
Stocks to Watch
Apple – A big event is scheduled for this week, but recent weakness in the stock means there has been little excitement to buy Apple. Can that sentiment turn around or will this new iPhone introduction (likely) be another excuse to do more selling.
Inflation – In Jackson Hole we heard Chair Powell declare the time had come for rate cuts to start. That of course could start next week, but there are still important inflation reports to consider this week. Will the CPI confirm the Fed’s view that inflation is right near target?
Nasdaq – It was the worst week in a year for stocks, the Nasdaq took the brunt of the punishment. Can it recover or will we see another lower higher, lower low in the weekly chart? The 50 week moving average is not far down from here, about 800 points which can be tagged easily with elevated volatility (currently).
